High-growth companies go through many rapid changes as they scale. One of the hardest transitions often happens early in the company’s lifecycle when they begin to take on money from professional investors. This is known as a Series A financing. Before that, companies are either financed by seed money, backed by money from friends and family, or are bootstrapped by the founder’s own funds.
Once professional investors put their money into a company, the internal dynamics of the business need to quickly change to meet the investors’ expectations. More frequent and professional communication is required and financial reporting needs to be updated—usually with the addition of either audited or reviewed statements.
At BeachHead, we’ve worked with companies going through these changes and we’ve learned a lot about what makes a smooth and successful transition. Based on our experiences, here are some of the things you can expect to happen after Series A financing:
Changes to the decision-making process
One of the biggest changes that happen when a company takes venture funding is that decisions which were once solely up to the founder now need to be more collaborative. Because there is now more than one owner, investors will usually place someone on the Board. Major decisions will usually require their input at a minimum and other decisions may require full Board approval.
Additionally, the next senior executive hires usually require the Board’s knowledge and approval. Usually, this is a fairly simple process as a relationship will have already built up during the funding stage, but for some founders who have operated exclusively with their own decision-making process, this can be challenging.
Building an operational base
Often in early-stage companies, the hiring of new team members focuses around revenue. The founder and early managers will ask themselves the simple question — “Is this new employee bringing in the money?”. Thus, teams in this phase of growth are often heavy on marketing, development, and sales.
But what teams in this stage often lack is some of the core operational structures. This includes office management, finance, HR and, in many cases, customer success and support. These are areas that don’t bring in short-term revenue but are vital in the long-run. Companies will need to bring in qualified people if they want to successfully scale-up their operations (an organization audit from BeachHead can help).
Honing management skills
Early-stage companies are often filled with high-performing individuals who are very qualified in their particular skill set. As companies grow, these team members get thrown into management positions—often without any meaningful training. Some of those team members may not even want to manage people but instead focus on their core skills such as marketing or design.
Early team members will become frustrated and challenged by new people joining. Once, they were part of a small group where they knew everything and everyone, and now they’re part of a larger team. When the company was smaller it was easier—there were no “rules” back then. As the company continues to grow, protocols and procedures need to be built, and this can be a source of frustration, especially for early team members. Their world is changing and supports should be in place to help them navigate it.
Communication protocols
Growing companies mean more stakeholders are involved in every aspect of the business’s operations, and more stakeholders means more communication. Before Series A financing, communication was often easy with an ongoing discussion through a small number of channels (Slack or otherwise) and chatting about what’s going on over lunch or across desktops. As more people are added to the equation, companies must build processes for communication—both internally and externally—with employees, Board members, investors, and other stakeholders.
Internally, this typically includes regular weekly team meetings (or in some cases, daily scrums) for every team from the executive down to the functional level. These meetings are an opportunity for team members to explain what they’re working on, what their goals are, and how far along are they towards achieving those goals. There should also be monthly overview meetings to review broader progress and share challenges and successes.
External communications may take the form of investor updates—usually issued quarterly, but sometimes monthly. These will include financial updates as well as operational and HR issues, updates on sales progress, and other important developments. The information should be open, transparent and honest. Board members are responsible for liabilities and need to know the details of any risks the company is facing.
Cash management
Finally, Series A financing often means there will be a bunch of money in the bank account for a while as the hiring process happens. There will be choices to make in managing cash. Should the company invest in high-interest savings accounts, GICs, and other places to keep the funds? Figuring out the timing of when cash will be required and making sure it’s available will be important. A good finance specialist, hired during the growth phase will be able to tackle these.
This time of transition, from Seed to Series A, can be a challenging time for many companies. At BeachHead, we have made a career of helping small companies move onto the next stage of their growth. Our Organization Audit gives business owners a comprehensive understanding of their strengths and weaknesses as well as a deeper understanding of the current state of their entire business operation. Click here to find out more about what an Organization Audit is and what it can do for you.
Connect with BeachHead
Email: rdrynan@beachheadstrategic.com
Phone: 416.888-4004
For more posts and insights, follow us on Twitter and Medium and connect with us on LinkedIn